a method of analysis of proposed Capital Investments that focuses on the present value of the cash flows expected from the investments. The net present value method that compares the amount to be invested with the present value of the net cash inflows. It is sometimes called the discounted cash flow method.
The interest rate used in the net present value analysis, is the company's minimum desired rate of return. This rate, sometimes termed the hurdle rate, is based on such factors as the purpose of the investment and the cost of obtaining funds for the investment. If the present value of the cash inflows equals or exceeds the amount to be invested, the proposal is desirable.